The S&P 500 Keeps Singing the Sour Earnings Song

After two small drops in 2019’s first two quarters, CFRA sees a 4.2% net income dive for the third period.

The blues continue for S&P 500 corporate earnings. The quarter ending September 30 will mark the third consecutive negative period this year, according to numerous estimates.

The third quarter, when all the reporting is done, will come in with a drop of 4.2%, according to research shop CFRA. FactSet, which compiles estimates from analysts, says the third quarter will be down 3.6%, compared to negative 0.4% in the second and off 0.3% in the first. This all pales against the double-digit advances in 2017 and 2018.

Sam Stovall, CFRA’s chief investment strategist, wrote in a recent report that the three sectors likely to do the worst in 2019’s third quarter are energy (down 31.4%), materials (minus 20.6%), and real estate (falling 16.7%). That makes sense: Oil and natural gas prices are in the dumps, materials suffer as manufacturing slows down, and real estate on the residential side has been no dynamo, despite lower mortgage costs.

Meanwhile, the effect of the big federal tax cut has pretty much run its course. The S&P 500, which has a strong presence overseas, lately is feeling the effects of a weakening Europe and the US-China trade war.

Along with this downbeat assessment are a spate of companies announcing that their earnings will come in below what analysts expect. They probably are trying to avoid surprises that will punish their stock even more than has been happening now. Tyson Foods, Macy’s, and Wynn Resorts are ratting themselves out on this score.

Beyond the large corporations that populate the S&P 5oo, the situation is even grimmer.

During the past three years, index’s net income rose a heady 50%. During the same time, the US Bureau of Economic Analysis’s assessment, which covers all American businesses down to the local deli, shows their after-tax profits going down 6%. The tax reduction evidently did little to help them.

CFRA sees a slightly improved fourth quarter for the S&P 500 (positive 2.8%), and then a 10.3% rebound in 2020.


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